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Here's Why Investors Should Retain Cracker Barrel (CBRL) Now

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Cracker Barrel Old Country Store, Inc.’s (CBRL - Free Report) increased focus on menu innovation, marketing strategies and robust off-premise sales bode well. However, dismal traffic due to the coronavirus pandemic continues to hurt the company. In the past six months, the company’s shares have gained 11.2%, compared with the industry’s rally of 15.7%.

Factors Likely to Drive Growth

In a bid to address the challenges of the competitive restaurant industry, Cracker Barrel has been undertaking extensive marketing efforts, primarily focusing on the brand’s differentiation, menu offering and its value.

During third-quarter 2020, the company introduced offerings such as Chicken Pot Pie and Saturday Fried Pork Chops. Notably, it is appropriately balancing its menu breadth with labor productivity and food waste amid depressed traffic levels. Moreover, the company initiated the addition of beer and wine tableside beverage program. The company has nearly 250 stores currently serving beer and wine. Moreover, the company announced that this was the first full quarter in which its new lunch and dinner menu was available in all stores.

Due to the pandemic, off-premise sales have increased sharply and is expected to remain elevated in fiscal 2021. In first-quarter fiscal 2021, the company’s comparable store off-premise sales soared 122% year over year. Off-premise sales represented 25% of total restaurant sales in first-quarter 2020, compared with 9% in the prior-year quarter. Further, management will continue to invest in its product line-up for improving guest experience and employee training to support long-term plans within this space. Robust demand for the company’s Heat n' Serve offerings is likely to drive its off-premise sales in second-quarter 2021. By the end of this fiscal year, the company expects to have 600 stores, which will have beer and wine offerings.

The Zacks Rank #3 (Hold) company has strong balance sheet, which will help it tide over the coronavirus pandemic. As of Oct 30, 2020, the company has cash and cash equivalent of $598 million, compared with $437 million as on Jul 31, 2020. Although the company’s long-term debt stood at $910 million at the end of Oct 30, 2020, flat sequentially; management believes it has enough liquidity to manage the current scenario. At the end of first-quarter fiscal 2021, the company had a debt-to-capital ratio of 0.61, which indicates that its debt levels are manageable.

Hurdles to Cross

Cracker Barrel suspended its dividend and stock buyback in an effort to preserve cash and maintain ample liquidity amid a possible recession due to the coronavirus outbreak. We believe that the coronavirus pandemic will hurt traffic and sales further in the coming quarters. Due to the coronavirus crisis, the company expects operations to be significantly impacted by factors such as capacity restrictions, jurisdictional regulations and state of economy re-openings. Notably, it anticipates the pandemic scenario to persist in the foreseeable future. Consequently, the company has refrained from providing any annual guidance citing the same.

Even though comps have increased over the past few quarters, decline in traffic continues to be a major concern for the stocks in this space. In the fiscal 2019, traffic declined 0.7%. The downtrend persisted in the first and second-quarter of fiscal 2020, with traffic declining 1.5% and 0.2%, respectively. During third-quarter fiscal 2020, comparable store restaurant traffic slumped 43.6%. Traffic woes have intensified due to the pandemic. In first-quarter fiscal 2021, comparable store restaurant sales comprised a traffic decline of 18.3%.

Key Picks

Some better-ranked stocks worth considering in the same space, include Jack in the Box Inc. (JACK - Free Report) , Darden Restaurants, Inc. (DRI - Free Report) and Red Robin Gourmet Burgers, Inc. (RRGB - Free Report) . All these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Jack in the Box earnings for fiscal 2021 is likely to witness growth of 20.2%.

Darden Restaurants has a three-five year earnings per share growth rate of 19.5%.

Shares of Red Robin Gourmet Burgers have gained 70.2% in the past three months.

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